Insurance Law-Warranties
Short Description
Insurance Law Warranties Notes...
Description
5. Warranties Introduction Part of risk management -
They want you to make sure that you ensure the risk does not happen. Reduce the chances of the loss crystalising Eg for fire policies, you may be required to install fire alarms/not bring in flammable materials.
Warranties are risk management clauses -
Terms of the contract describing risk or coverage, or of controlling risks Some are concerned with procedures to follow. Eg the one in Re Coleman’s deposirty (give notice in 7 days) Policy terms include the following: Warranties exceptions, condition precedent, clause descriptive of risks collateral conditions innominate terms (Hong Kong Fir)
Note there is a difference between rejecting a claim and repudiating the entire contract -
Both can happen. The former in Re Coleman, the latter in other cases.
Distinction in terminology between insurance and general contract law Note the distinction in terminology of terms used in insurance law and general contract law. -
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Note especially the curious use of term warranty in insurance And the notion of condition in insurance law : Stoneham v Ocean Railway (concerning a notice condition) sheds light on how it is generally understood in insurance Cf contract case of Schuler v Wickman – Lord Reid’s approach Cf with terminology used in S.11(2) Sale of Goods Act, Cap 393 : Whether a stipulation in a contract of sale is a condition, the breach of which may give rise to a right to treat the contract as repudiated, or a warranty, the breach of which may give rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated, depends in each case on the construction of the contract; and a stipulation may be a condition, though called a warranty in the contract
Stoneham v. Ocean Railway and Gen Accident Insurance (1887) 19 QBD 237
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The assured was accidentally drowned in Jersey. It was impossible to give notice within seven days. In an action on the policy, it was held by the Queen’s Bench Division that the accident happened within the United Kingdom and that notice was not a condition precedent to the right to recover and the insurers were liable
Nature, Characteristics and Effect of Warranty and its Breach Fundamental promise made by the assured; if breached, the insured is automatically discharged from liability regardless of whether loss is connected with breach. - Cf. s33 of Marine Insurance Act. s33 of Marine Insurance Act. -
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(1) A warranty, in the following sections relating to warranties, means a promissory warranty, that is to say, a warranty by which the assured undertakes that some particular thing shall or shall not be done, or that some condition shall be fulfilled, or whereby he affirms or negatives the existence of a particular state of facts. (2) A warranty may be express or implied (3) A warranty, as defined, is a condition which must be exactly complied with, whether it be material to the risk or not; and if it is not so complied with, then, subject to any express provision in the policy, the insurer is discharged from liability as from the date of the breach of warranty, but without prejudice to any liability incurred by him before that date.
Difference from misrepresentation Warranty -
Must be exactly complied with. Be it material to risk or not If not, discharged from liability
Misrepresentation -
MIA s20(4) A representation as to a matter of fact is true, if it be substantially correct, that is to say, if the difference between what is represented and what is actually correct would not be considered material by a prudent insurer.
Pawson v. Watson (1778) 2 Cow 785 - Ship to carry 12 guns and 20 men. In fact it carried 9 guns, 6 swivels; 16 men and 11 boys better armed? - H: there was substantial compliance - Q: if warranty? Would have been breached.
Effect of breach Query how different from normal breach of contract?
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Effect on premiums and concept of failure of consideration? Depends on type of warranty. There are warranties of present fact, past fact, and also continuing warranties. For example, if it is the former and you breached it right at the outset, total failure of consideration and premiums can be had back. Bad from the start. But if, say there was a good contract for a period of time, it means in an insurance context that the risk had run (not divisible). Means that no total failure of consideration and you can’t get back the premiums for the time run. Query: Can breach be repaired? Answer: No. BUT can be waived. MIA s34(2) Where a warranty is broken, the assured cannot avail himself of the defence that the breach has been remedied, and the warranty complied with, before loss See subsequent case of De Hahn
De Hahn v. Hartley (1786) 1 TR 343 -
Warranted: 50 hands on board when ship sails when ship set sail: 46 men on board, enroute picked up 6 more men H: could avoid all liability for breach even though no connection with subsequent loss Once broken can’t be mended
Bank of Nova Scotia v. Hellenic Mutual War Risks Association (Bermuda) Ltd [1992] 1 AC 233 -
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Ship owner warranted not to take ship to prohibited area(war zone) Insurer undertook to inform bank should they “cease to insure” Insurer discovered but failed to inform bank who continued to lend money to insured Bank argued would not have loaned money if knew of breach of warranty and no coverage, so sued insurer for not informing bank Insurer’s point: They had not ceased to insure yet. They had not decided whether to rely on warranty/ not elected to repudiate yet. Thus, they had nothing to tell. Q: turned on what’s effect of breach? Was it elective? Held: Automatic breach - no need election on Insurer’s part. S 33(3):if it is not so complied with, then, subject to any express provision in the policy, the insurer is discharged from liability as from the date of the breach of warranty, but without prejudice to any liability incurred by him before that date. Not may be discharged. Subsisting rights remain.
Contra earlier position in West v. National Motor and Accident Insurance Union [1954] 1 Lloyd's Rep 461, affd [1955] 1 All ER 800. Poh Siew Cheng v AIA [2006] 6 MLJ 57 Sumpiles Investments Pte Lts v AXA Insurance [2006] 3 SLR 12 -
The defendant agreed to insure the floating crane barge. Among other things, breach of express warranty was pleaded.
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Counsel for both sides accept that for a warranty to be given its proper effect, its true meaning must be determined as a matter of construction. The class warranty here is a promissory warranty. Must use commercial sense also to construe. Section 33(1) of the Act defines a promissory warranty as one by which the assured undertakes that some particular thing shall or shall not be done, or that some condition shall be fulfilled, or whereby he affirms or negatives the existence of a particular state of facts. To comply with a ‘class maintained’ warranty it does not matter that the vessel ought not to have been maintained in class and that the class ought to have been withdrawn. What matters is ‘formal’ and not ‘material’ class.
Waiver/excuse of breach Can be waiver by affirmation or estoppel s 34(3) of Marine insurance Act Bank of Nova Scotia v. Hellenic Mutual War Risks Association (Bermuda) Ltd [1992] 1 AC 233 UKHL -
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It is laid down in section 33(3) that, subject to any express provision in the policy, the insurer is discharged from liability as from the date of the breach of warranty. Those words are clear. They show that discharge of the insurer from liability is automatic and is not dependent upon any decision by the insurer to treat the contract or the insurance as at an end; though, under section 34(3), the insurer may waive the breach of warranty. HL thus overruled the CA Section 33(3) of the Act reflects what has been described, in successive editions of Chalmers, The Marine Insurance Act 1906, as the inveterate practice in marine insurance of using the term "warranty" as signifying a condition precedent." Lord Goff referred to Thomson v Weems and said "Once this is appreciated, it becomes readily understandable that, if a promissory warranty is not complied with, the insurer is discharged from liability as from the date of breach of warranty, for the simple reason that fulfilment of the warranty is a condition precedent to the liability of the insurer… In the case of conditions precedent, the word "condition" is being used in its classical sense in English law, under which the coming into existence of (for example) an obligation, or the duty or further duty to perform an obligation, is dependent upon the fulfilment of the specified condition. Here, where we are concerned with a promissory warranty, i.e. a promissory condition precedent, contained in an existing contract of insurance, non-fulfilment of the condition does not prevent the contract from coming into existence. What it does (as section 33(3) makes plain) is to discharge the insurer from liability as from the date of the breach. Certainly, it does not have the effect of discharging the contract ab initio. Held, however, that this may be waived. When, as section 34(3) contemplates, the insurer waives a breach of a promissory warranty, the effect is that, to the extent of the waiver, the insurer cannot rely upon the breach as having discharged him from liability.
This is a very different thing from saying that discharge of the insurer from liability is dependent upon a decision by the insurer. HIH Casualty &Gen Ins v. Axa Corporate Solutions [2002] 2 All ER (Comm) 1053 -
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Insured film investors –policy makes up shortfall if receipt too little. Warranted number of films to be made Monthly reports sent indicating may not comply with number of films warranted, reinsurers raised questions, expressed concern Any clear and unequivocal representation that wont insist on strict rights? More a policy of silence and inactivity Since this was an insurance case, the waiver alleged was a waiver by estoppel, or promissory estoppel. This required a) a clear and unequivocal representation that the reinsurer (in this case) would not stand on its rights to treat the cover as having been discharged b) that the insurer (in this case) had relied on this representation. c) in circumstances in which it would be inequitable to allow the reinsurer to resile from its representation. The representation had to relate to the willingness of the reinsurer to forgo its rights. Axa’s conduct must have been such as to convey to a reasonable person that Axa was aware of its rights and was prepared to forgo them. It was not sufficient to establish the necessary estoppel that Axa’s conduct had conveyed only that it believed the cover continued in place, without giving the slightest indication that it was aware that it could take the point that cover had been discharged but had decided not to do so. It was difficult to see how HIH could, on the evidence, establish such an unequivocal representation. Further, there was no evidence that HIH had relied upon a representation by Axa that it would not enforce its right to treat the cover as discharged.
Argo System Fze v Liberty Insurance (Pte) and Anor *2011+ 1 Lloyd’s Rep 427 EHC Liberty v Argo [2011] EWCA Civ 1572 -
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Towed as a dead ship from the US Gulf to India; policy taken out. Vessel sank, cover declined, litigation in the US, insurer. In England : new claim against insurer who raised new defences in addition to those pleaded in US case: breach of “hold harmless” warranty Four months after the loss, insurer’s lawyer sent out letter for grounds of declining claim, however, letter worded: "The foregoing is without prejudice to all the remaining terms and conditions of the policy.“ did not refer to the breach of the warranty in question. Also waited 7 yrs to raise defence in English court Held per CA: This did not amount to an unequivocal representation, since the letter had contained the important words Per Aikens LJ: Saying nothing and 'standing by' (ie, doing nothing) are, to my mind, equivocal actions.
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In my view, there are no special circumstances in this case that are capable of turning the silence and inaction of Liberty into an unequivocal representation to Argo that it did not intend to enforce its strict legal rights based on a breach of the Hold Harmless Warranty. Reversed H Ct judge’s decision on this point NB: we discussed this decision in HCt context for misrep, damages and affirmation and this point not appealed against. CA “ damages for misrepresentation point and I will say no more about it. Exploration of that interesting question must await another case.” Para 39: There are similarities and differences between the allied doctrines of "waiver by election" and "waiver by estoppel". They were discussed by Lord Goff of Chieveley in Motor Oil Hellas (Corinth) Refineries SA v Shpping Corporation of India ("The Katchenjunga"). Both doctrines require that the person who is alleged to have "waived" the relevant contractual right has made an unequivocal representation, by words or conduct, that he does not, in future, intend to enforce that legal right which he has as against the other party to the contract. However, in the case of "waiver by estoppel", which Lord Goff characterised as "equitable estoppel", it also has to be demonstrated that the other party, ("the representee" in Lord Goff's phrase), relied upon that unequivocal representation in such a way that it would render it inequitable for the representor to go back on his representation.
HBZ International Exchange Co (S) Ltd v. L-Union des Assurance de Paris IARN [1993] 1 SLR 822 -
CA: waived their right to repudiate since failed to do so timeously – troubling. Can it stand in light of Good Luck?
Creation of warranties 35. —(1) An express warranty may be in any form of words from which the intention to warrant is to be inferred.
Basis clause A clause stating that the information given is a basis of the contract (fundamental) -
One version of Basis Clause: I agree that this declaration, with the answers given by me shall be the basis of the Policy Another version: I understand the policy will be issued on the basis of the above statements
Dawsons Lt. v. Bonnin & Ors [1922] 2 AC 413 UKHL -
basis clause: effect PF: where is motor vehicle to be garaged. Ans: usual place of biz in Glassgow In fact a less risky place So not per se a material fact.
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The House considered whether a provision was a warranty rather than a representation, allowing the contract to be avoided for its breach. The earlier authorities of the English Courts were reviewed by the House of Lords. (3:2 decision) Per Viscout Cave: "Upon the whole, it appears to me, both on principle and on authority, that the meaning and effect of the 'basis' clause, taken by itself, is that any untrue statement in the proposal, or any breach of its promissory clauses, shall avoid the policy; and if that be the contract of the parties, it is fully established, by decisions of your Lordships' House, that the question of materiality has not to be considered." Basis clause turns information in contract into warranties. Even if not per se material.
Yorkshire Insurance Co v. Campbell [1917] AC 218 -
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Even on something covering property description The issue was whether a description of the insured horse as "Bay gelding by Soult out of St. Paul (mare) 5 yrs" was a warranty in a policy insuring the horse on a sea voyage. In fact the pedigree of the horse insured was not "by Soult out of St. Paul mare". During the sea carriage the horse died from natural circumstances without any connection to the specific pedigree The Privy Council held the words were a true warranty and said:"Prima facie, words qualifying the subject-matter of the insurance will be words of warranty, which in a policy of marine insurance operate as conditions." To rebut this presumption, evidence of intent would have to be shown. Lord Sumner said that as the parties chose to import the description of subject matter into the terms, they must have intended some legal significance. Does this possibly mean that if it can be shown to be merely descriptive, not a warranty? Not if it is also material, according to HIH v New Hampshire (below) How to rebut? Lord Sumner offered some guidelines Regard must be had to the surrounding circumstances, to read the policy as it was intended to be read by the parties Must have regard to the nature of the transaction and the known course of business and the forms in which such matters are carried out.
Condogianis v. Guardian Assurance Co [1921] 2 AC 125 UKPC from Australia - untrue statement in prop form with bc re previous claim - inadvertently given - Lord Shaw held as follows: "The case accordingly is one of express warranty. If in point of fact the answer is untrue, the warranty still holds, notwithstanding that the untruth might have arisen inadvertently and without any kind of fraud. Secondly, the materiality of the untruth is not in issue; the parties having settled for themselves by making the fact the basis of the contract, and giving a warranty -- that as between them their agreement on that subject precluded all inquiry into the issue of materiality." Unipac v. Aegon Ins Co [1999] Lloyd's Rep 502
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‘ we declare that to best of our knowledge and belief all statements and particulars contained in this proposal are true and complete and that no material fact had been withheld or suppressed . We agree that this proposal shall be the basis of the contract between us and the insurers”. Cf Zeller
Other methods of creating warranties There are methods other than a basis clause - Use of word - Function - Consequences HIH Casualty Insurance v. New Hampshire [2001] 2 Lloyd's Rep 161 -
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Film finance policy – no of films in a slate Test for a warranty: Term which goes to root Bears materially on risk of loss Whether damages inadequate remedy (how much would lost film have contributed to revenues) Held: once the six film term is established as a term of the insurance or reinsurance contract, the grounds for holding it to be a warranty are very strong. It is a question of construction, and the presence or absence of the word "warranty" or "warranted" is not conclusive. One test is whether it is a term which goes to the root of the transaction; a second, whether it is descriptive of or bears materially on the risk of loss; a third, whether damages would be an unsatisfactory or inadequate remedy. As Bowen LJ said in Barnard v Faber [1893] 1 QB 340 at 344: "A term as regards the risk must be a condition." Otherwise the insurer is merely left to a cross-claim in a matter which goes to the risk itself, which is unbusinesslike In the present case, the six film term would seem to answer all three tests. It is a fundamental term, for even if only one film were omitted, the revenues are likely to be immediately reduced. That will not matter if the revenues already exceed the sum insured, for in that case there can be no loss in any event. Where, however, the revenues fall below the sum insured, the loss of a single film may be the critical difference between a loss or no loss, and will in any event be likely to increase the loss. For the same reason the term bears materially on the risk. A cross-claim would be an unsatisfactory and inadequate remedy because it would never be possible to know how much the lost film would have contributed to revenues. A description of the subject-matter of the insurance written into the policy and obviously material to the risk would be likely to be construed as a warranty.
Toomey v Banco Vitalico [2004] EWCA CIV 622 -
Policy for economic loss that might arise if team relegated from first division of spanish league
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Reinsured that and warranted that underlying policy is an indemnity policy – representation made. Turned out to be valued policy By entering into the slip policy, Vitalicio had undertaken that the underlying insurance had been properly described therein, and in particular, had undertaken (by means of the interest clause in the reinsurance slip policy) that the insurance indemnified Atletico for its net ascertained loss, subject to an agreed limit of 2.9 billion pesetas. The question was whether these undertakings had the status of warranties, allowing the reinsurers to treat their liabilities as discharged. Following the judgment of Rix LJ in HIH Casualty and General Insurance Ltd v New Hampshire Co [2001] 2 LILR 161, the judge applied the three-limb test The judge found that the term was fundamental to the subject matter of the transaction. T The key consideration was the importance to the insured risk of the term providing that the exposure was not a limited indemnity for loss suffered but, a predetermined amount. Although it was noted that such a term goes to quantum, rather than risk, the judge found that it had a direct and significant bearing on the risk being underwritten by the reinsurers. In the judge’s view, damages might have been an adequate remedy if the reinsurers were able to demonstrate that Atletico’s net ascertained loss was less than the amount of the settlement of the insurance claim and the measure of the difference. However, to expect the reinsurers to do so, or to be in a position to do so, was unrealistic. Damages would therefore not be a satisfactory remedy. Vitalicio had therefore breached warranties given to the reinsurers. The reinsurers were entitled to consider their obligations discharged.
GE Reinsurance Corp v New Hampshire Ins Co [2004] Lloyds Re IR 404 -
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The reinsurance slip wording “the contract of employment for the film company's chief executive officer was to be maintained for the duration of the policy”. The employment was not maintained. Held it was a warranty. It was submitted that the Wording met each of the various tests for a warranty summarised by Rix LJ in HIH v New Hampshire I agree. Indeed I think there is a fair analogy between the number of films in issue in that case and the role of Mr Stabler in this case. Mr Stabler's role and involvement in Destination was crucial to its success, and so to the noteholders being repaid, and so to the risk of an insured loss. If reinsurers were to be limited to a claim for damages for breach that would be an unsatisfactory and inadequate remedy because it would never be possible to assess how Mr Stabler's departure had affected Destination's ability to repay the noteholders.
Kumar v. AGF [1998] 4 All ER 788 -
Applied Bank of Nova Scotia case to non-marine insurance.
Reform? See also Law Commission Insurance Law, Non Disclosure and Breach of Warranty (HMSO, London) Report 104, 1980, Cmnd 8064 – especially "basis of the contract" clauses in Part VII Note also The Law Commission Consultation Paper No 182, 2007. Proposals for changes in this area of law are gaining currency.
Types and examples of warranties Past, present and future facts Phraseology is important in construction -
Relevant also because MIA says liability is only avoided from the time of breach For example, difference between “I have always maintained a Chubbs alarm system” and “I will always maintain a Chubbs alarm system.” Eg “I don’t drink” “I will keep it in a safe” “I believe I’m of fine health”.
Can be a promissory warranty, a continuing warranty or a future warranty -
Hussain v Brown, see also Hair v Prudential [1983] 2 Lloyds Rep 667., Woolfall &Rimmer [1942] 1 KB 66 There seems to be an exception to futurity in Hales case. ASK: Has Hussain overruled it?
Beauchamp v National Mutual Indemnity Insurance [1937] 3 All ER 19 - builder - policy to cover demolition of mill - Q: are there any explosives used? No. - Because never used explosives before, language can only have reference to future. True at time of form filling but used explosives later - There was a presumption that warranties in fire and burglary policies as to the condition of the premises and precautions taken to prevent loss will prima facie be construed as continuing otherwise such warranties will be of little value to the insurers - Does it survive Hussain? Yes, see Ansari? Hales v. Reliance Fire & Accident Insurance [1960] 2 Lloyd's Rep. 391 - Trader insuring business premises against fire - Q in Proposal form: any inflammable oils or goods kept in premises? Answer was “lighter fuel”.(present tense) - Brought in some fireworks later. They caught fire and the insured made a claim - Suggestion that in fire and burglary insurance, warranties as to nature of premises and precautions taken against loss must apply to whole duration of policy - can’t quite stand now in light of Hussain? Similar rule to Beauchamp - But see Ansari: Q of fact Hussain v. Brown [1996] 1 Lloyd's Rep. 627
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The claimant completed and signed a proposal form for a Lloyd's fire policy in respect of his commercial premises. Question 9 of the proposal form asked: ‘Are the premises fitted with any system of intruder alarm?’ The claimant answered this question 'Yes'. The Court of Appeal held questions contained in proposal forms, albeit in the present time, cannot be taken to import warranties as to the future. Saville LJ: There is no special principle of insurance law requiring answers in proposal forms to be read, prima facie or otherwise, as importing promises to the future. Whether or not they do depends upon ordinary rules of construction, namely consideration of the words the parties have used in the light of the context in which they have used them and (where the words admit of more than one meaning) selection of that meaning which seems most closely to correspond with the presumed intentions of the parties. Any ambiguity in the terms of the policy must be construed against the insurer. The principle rests in part on the general contra proferentem rule but also on the court's sympathy for ordinary people unaccustomed to legal documents who find it difficult to relate the different parts of a complex policy and understand what is being asked of them, especially when insurers could with more care remove the ambiguities present in it. Overruled Hales v Reliance? My comment: Nonetheless, it does not mean that the courts will never construe a warranty framed in the present tense as continuing to the future.
Hair v Prudential Assurance Assurance Co Ltd [1983] 2 Lloyd's Rep 667 - A warranty in a policy that a property “is occupied” was taken not to be continuing. Agapitos v Agnew No 2 [2003] Lloyd's Rep IR 54 - At the time of contract, the assured warranted that the insured vessel had London Salvage Association approval of location, fire fighting and mooring arrangements. Two weeks later, the LSA certificate expired and was not renewed. - Moore-Bick J. held that this was a continuing warranty, as there was no sense in underwriters securing such protection only to relinquish it days later Woolfall & Rimmer v Moyle [1942] 1 KB 66 -
The insured warranted in a proposal form that its machinery, paths and plant are “properly fenced and guarded, and otherwise in good order and condition”. ECA rejected the argument that the warranty was continuing The use of the present tense, rather than the future tense, was held decisive. If underwriters wish to limit by some qualification a risk which, prima facie, they are undertaking in plain terms, they should make it perfectly clear what that qualification is. They should, with the aid of competent advice, make up their minds as to the qualifications they wish to impose and should express their intention in language appropriate for achieving the result desired. There is no justification for underwriters, who are carrying on a widespread business and making use of printed forms either failing to make up their minds what they mean, or, if they have made up their minds what they mean, failing to express it in suitable language.
Any competent draughtsman could carry out the intention which [counsel] imputes to this document, and, if that was really intended, it ought to have been done’. Ansari v New India [2009] EWCA Civ 93 ECA -
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"Are the premises protected by an automatic sprinkler system?” The sprinkler system had been turned off for some time and a filing cabinet pushed against the control handle. General condition 2 of the policy: "This insurance shall cease to be in force if there is any material alteration to the Premises or Business or any material change in the facts stated in the Proposal Form or other facts supplied to the Insurer unless the Insurer agrees in writing to continue the insurance". Held: Avoided Confirming in an insurance proposal form that premises were protected by an automatic sprinkler system was a representation not just that the building was fitted with the system, but that it was functioning and capable of operating. An automatic sprinkler system, once installed, forms an integral part of the building. Unlike, say, an intruder alarm, it is intended to function permanently, in the sense of being constantly ready to operate in the event of a fire without the need for human intervention. Distinguished Hussain v brown. Per Moore-Bick LJ: Similarly, I do not think that any assistance is to be gained from Hussain v Brown. In that case it would have been difficult to read the warranty that the premises were fitted with an intruder alarm as containing by implication a continuing warranty that it would be maintained and put into operation whenever the premises were left unattended. Apart from anything else, such an interpretation could lead to a complete loss of cover as a result of a simple act of negligence on the part of the insured or his employees in failing to set the alarm. Thus turning off the system altered the facts on which the insurance had been underwritten unless the system was turned off temporarily for service or repairs. So too did the change of business run from the property from the sale of kitchenware to saddles, harnesses, scooters and mini-motorbikes. In determining whether those changes of fact were material a different test to that in PanAtlantic v Pine Top was appropriate because the change arose during the currency of the policy. To be material after inception within the meaning of the notification clause the change must significantly affect the risk or to take the risk outside what was in the reasonable contemplation of the parties at the time the policy was issued.
Statements as to the insured’s health Ask: Factual or opinion? -
Medical questions. Generally, answer to best of your knowledge and belief Wrong only if dishonest or absolutely reckless
Thomson v. Weems (1884) 9 App Cas 671 -
Q: are you temperate in your habits? Yes Have you always been strictly so? Yes Unfortunate decision to have held it as one of fact – ought it not be one of opinion?
Yorke v. Yorkshire Insurance Co Ltd [1918] 1 KB 662 -
Taken over-dosage of sleeping tablets (tried to kill himself, depression) Q: What illnesses have you suffered? Ans: None of any consequence Mcardie J : Illness to be construed in a “fair and businesslike manner” Fact of overdosage. Q of degree Distinguish this from Zeller
Mutual Life Insurance Co of New York v. Ontario Metal Products [1925] AC 344 -
The main difference of judicial opinion centres round the question what is the test of materiality? Mignault J. thought that the test is not what the insurers would have done but for the misrepresentation or concealment, but ‘what any reasonable man would have considered material to tell them when the questions were put to the insured’. Their Lordships are unable to assent to this definition. It is the insurers who propound the questions stated in the application form, and the materiality or otherwise of a misrepresentation or concealment must be considered in relation to their acceptance of the risk.
Kumar v. Life Insurance Corporation of India [1974] 1 Lloyd's Rep 147 -
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Delivery by C section PF: have consulted any medical practitioner within the last 5 yrs? No any operation or injury? No, only delivery. Terminology: Operation Consultation Refer to medical dictionaries and ordinary English to determine meanings of terms. Although she didn’t think C-section is an operation, it was ASK: Is this harsh?
Zeller v British Caymanian [2008] UKPC 4 -
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Health ins cover “yes” in respect of ‘Goitre, thyroid trouble, diabetes’ and “no” in respect of ‘heart trouble, abnormal blood pressure (hypertension or hypotension), anaemia, rheumatic fever’. “To the best of your knowledge and belief” He signified “no” where asked if he had any departure from good health other than those listed. Visit to GP - detected a heart murmur
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He underwent major cardiac surgery and Z sought payment of his medical and hospital expenses Held: Cannot repudiate Insured had failed to disclose medical conditions for which he was diagnosed and had received treatment (namely elevated cholesterol and blood pressure, and a minor heart murmur which had been previously noted, although no medication was ever prescribed). Defence, BC : Z may not have acted in good faith, and that it had been induced to cover Z by the representations he made. Maj : reasonable person acting with ugf would have disclosed regardless whether he believed these were illnesses and diseases Minority: an ordinary person in Z’s position would not regard those as disease or sickness for which he has to disclose. PC: answers were true – he is to exercise his judgment on what appears to him to be worth disclosing - he thot it was trivial Cant repudiate “To the best of your knowledge and belief” The court reasoned that, having regard to the manner in which questions in the enrolment form were framed, Zeller disclosed everything about the state of his health that he was required to disclose. He was under no obligation to disclose a complaint that he thought was trivial even if it later transpired that the complaint was symptomatic of a more serious underlying condition.
Terms delimiting risk Courts will try to interpret it reasonably. -
Basically if you do not comply, you are not on risk. But doesn’t mean contract avoided. Rather, if you do not comply, the risk is suspended (not terminated) “Strict but reasonable” construction, Per Provincial v Morgan
NOTE s 25(5) Insurance Act -
No Singapore insurer shall use, in the course of carrying on insurance business in Singapore, a form of proposal which does not have prominently displayed therein a warning that if a proposer does not fully and faithfully give the facts as he knows them or ought to know them, he may receive nothing from the policy.
Pratt v Aigaion Dec 23 2008 [2008] EWCA 1314 -
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Mr Pratt owned and skippered a 21m trawler, The Resolute, insured for 12 months with Aigaion, whose policy included a crewing warranty reading, “Warranted owner and/or owner’s experienced skipper on board and in charge at all times and one experienced crew member”. The vessel’s accommodation was not habitable over an extended period. The boat tied up after a day’s fishing, the skipper and crew disembarked and a fire started in the galley. She was so severely damaged as to become a constructive total loss.
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The trial judge, Mr Justice Mackie, held that “at all times” meant what it said. Since no-one had been aboard the vessel when the fire broke out, the warranty had been breached and Aigaion was off-risk ECA disagreed The Master of the Rolls, Lord Justice Clarke, emphasised that interpretation should not produce an unreasonable result in the circumstances known to the parties. He also reinvigorated the contra proferentem maxim that ambiguity in warranties will be construed against the insurer. The parties knew the vessel might be tied up from time to time: she had to be laid up for over 100 days a year given fishery restrictions. No-one would expect anyone to live aboard then. This led the Court of Appeal to differ over the breadth to be given to “at all times” by finding the phrase needed qualification and was thus ambiguous. In turn, that allowed the Court to find the available reasonable meaning least favourable to the insurer. Taking a purposive approach, Lord Justice Clarke found that since the warranty focussed on the skipper, its purpose was to have him (and an experienced hand) aboard to guard against hazards of navigation rather than whilst tied up. Finally, the Court noted other policy terms which expressly provided that cover would continue when no-one would sensibly have thought that crew could be on board, such as during refits and overhauls. In short, the warranty did not apply “at all times”
Suspensive Term Seems like Courts will resolve ambiguity against insurer. Also this has been said to be a device to mitigate the harshness of the law on warranties. -
Using the umbrella of “commercial sense”. But per se, all the comments on commercial sense relate to the harshness of the remedy.
Provincial Insurance v. Morgan [1933] AC 240 -
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Here coal merchants declared that their lorry would be used for coal, which became the basis of the contract. On the day of the accident, the lorry was also used to carry Forestry Commission timber. However, at the time, the timber had been unloaded and only coal was on-board. The House of Lords held an endorsement on the policy stating that the use was “transportation of own goods in connection with the insured’s own business” did not mean that the vehicle was to be used exclusively for the insured’s own goods. On “a strict but reasonable construction” the declaration and the clause only meant that transporting coal was to be the normal use. A warranty of past and present fact and not as to user Transporting other goods would not terminate liability under the policy. Alternative perspective: Lords Russell and Wright & CA User of vehicle and gds to be carried is descriptive of risk, suspensive nature No need causal connection
Farr v. Motor Traders [1920] 3KB 669 -
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The policyholder insured two taxi-cabs, stating that they were only driven for one shift every 24 hours. For a short time, one of the cabs was driven for two shifts while the other was being repaired. The cab was then used for one shift a day in the normal way and a couple of months later was damaged in an accident. The Court of Appeal rejected the insurer’s argument that the assured had breached a warranty. Instead the words were merely “descriptive of the risk”. This meant that if the cab was driven for more than one shift per day, the risk would no longer be covered, but as soon as the owner resumed one-shift working, the insurer again became liable.
De Maurier v Bastion [1967] 2 Lloyds Rep 550 -
The insured warranted that the vehicle in which the insured jewels were to be carried was fitted with locks and alarms. The trial judge held that the inadequacy of the locks and alarms for a short period of time was not a breach of warranty, and subsequent claim made for a loss occurring when the insured was complying with the terms was valid
CTN Cash & Carry Ltd v. General Accident Fire & Life Assurance [1989] 1 Lloyd's Rep. 299 -
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Main policy – 12 sections : 2 dealt with burglary and money insurance. Warranted that the secure cash kiosk shall be attended and locked at all times during business hours. Cashier left to collect till key before closing shop - robbers struck Held: though used term “warranted”, it was suspensive term Macpherson J: The fact that there were 12 sections to the policy is strongly relevant. This clause could only be relevant to the two sections with which we are concerned, and it is presumably for that reason that the whole of the policy and the remaining sections have never been put before me. It would be unrealistic, in my judgment, to imagine a breach of this warranty bearing in any way upon the rest of the sections of the policy, to which I have not been referred.
HBZ International Exchange Co (S) Ltd v. L-Union des Assurance de Paris IARN [1993] 1 SLR 822 -
Cover loss from six causes itemised in A-F. 4 causes - losses whilst on transit. 2 - non -transit losses kept in locked safes Warranted that carryings exceeding $100,000 be accompanied by at least two employees of the insured. H : H (Ct) - Warranty; CA : term delimiting risk - followed CTN v Cash and Carry : term relevant to 2 out of 12 sections Judicial obiters: H Ct: physical separation – when went to get car
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insured argument that fleeting separation with no nexus to subsequent loss not a breach of W: : Rubin’s approach Is this correct? Breach is strictly construed. CA: waived their right to repudiate since failed to do so timeously – troubling. Can it stand in light of Good Luck? CA: Goh J: the insurer reserved “right to sue for damages for breach”. - how to measure?
Printpak v. AGF Insurance [1999] Lloyd's Rep IR 542 -
Multi-section policy Took out commercial inclusive insurance – policies contained number of sections , eg A: fire, B: theft, C: employer’s liability, D: money in transit. . Warranted burglar alarm operational . broken at time of fire – part of endorsement H: Policy divisible, warranty not applicable to fire risk section Not a seamless contractual document, write warranty into only relevant section. Another way of looking at it
Bank of Nova Scotia v. Hellenic Mutual War Risks Association (Bermuda) Ltd [1992] 1 AC 233 Kler Knitwear v. Lombard Gen Ins [2000] Lloyd's Rep IR 47. -
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Policy on factory premises –clause under which it was "warranted" that its sprinkler installations would be inspected within 30 days of the renewal. Not carried out in time – insurer relied on this warranty in an action for storm damage Morland J: absurd that claim is barred because company inspection carried out late. Once and for all obligation – not necessarily a warranty. Here, at time of loss, term complied with - so insurer back on risk. Here the policyholders had agreed that their sprinkler system would be inspected 30 days after renewal. In fact, the inspection was about 60 days late and showed that the system was working. The factory later suffered storm damage (which was wholly unconnected with the sprinklers). Mr Justice Morland accepted in principle that if on a proper construction of the clause, the parties intended it to be a warranty then the Court “must uphold that intention” however harsh and unfair the consequences. However, this particular clause was merely “a suspensive condition”, limiting the risk. The court found the draconian nature of warranty made little commercial sense in the case and it would be absurd if the insured’s claim was barred simply because an inspection had been carried out late. Therefore, they construed the term not as a warranty, but as a suspensive condition, by which the risk is suspended during any period of non-compliance Much criticised decision The surprising thing about Kler Knitwear was that the term was clearly stated to be a warranty and the policy later went on to spell out the consequences, namely that noncompliance would bar any claim, “whether it increases the risk or not”. It is difficult to see how the insurer could have stipulated this in any clearer terms. The term itself was called a warranty and was drafted in clear and intelligible language and the consequences of noncompliance were spelled out.
In Kler Knitwear, the judge would appear to be going further than merely resolving an ambiguity in contractual drafting in favour of the insured. Instead he is replacing a consequence that “would be utterly absurd and make no business sense” with one that is fairer to the insured GE Frankona Reinsurance Ltd v CMM Trust No 1440 [2006] EWHC 429 (Admlty), [2006] Lloyd's Rep. I.R. 704 -
Marine insurance for yatch valued at $3 million “Warranted vessel fully crewed at all times “ – delimiting would be more than adequate to meet commercial purpose (emergencies,certain crewing duties to b performed offshore,purchase food). When in the dock, no need to be fully crewed right? YHY says Courts clearly coming up with ways to make terms suspensory and not warranties. CF Pratt v Aigaion "Warranted Owner and/or Owner's experienced skipper on board and in charge at all times and one experienced crew member." Suggests that to protect against navigational hazards “at all times”: should be qualified 2 members to be fully present only for purposes of navigating including manoevering
Anders &Kern v CGU Insurance PLC [2007] 2 All ER (Comm) 116 -
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The claimant, Anders & Kern (A & K), sold audio-visual equipment. The managing director, Mr Kuziw, was notified of a problem with the BT alarm system connection. BT were unable to confirm to Mr Kuziw when an engineer would be able to attend to resolve the situation. He remained at the premises until 9.30pm when he left, uneasy about being alone on an industrial estate. Overnight, burglars broke into the warehouse and stole goods The IAC required that the premises be attended or an alarm be set and working. Norwich Union declined cover on the basis that neither of these requirements were met The court decided that there was no basis for implying this ‘personal danger’ term into the policy. The allocation of risk was clear. If the alarm did not comply with the requirements of the IAC, cover would only remain in place if a responsible person remained at the premises.
Ansari v New India [2009] EWCA Civ 93 AC Ward v Caitlin [2009] EWCA Civ 1098 -
The warranties were warranties in the technical sense, not “suspensive conditions” as the meaning of a warranty was a defined term in the policy and the definition clause said that a breach voided the contract from the date of breach.
Sugar Hut Group Ltd v Great Lakes Reinsurance (UK) Ltd Plc [2010] EWHC 2636 (Comm) -
Two warranties in respect of the kitchen in nightclub . 1): the contact of the kitchen ducting with "combustible materials"
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2) the inspection every six months by a specialist contractor The last inspection had taken place more than six months before the fire. H: 1 the warranty as to the ducting bore materially on the risk of loss and D was entitled to regard it as an important protection 2) inspection – can be interpreted as suspensory but never occurred While Klier knitwear has been criticized, this looks similar!
Warranty incapable of compliance New Zealand Insurance Co Ltd v Ong Choon Lin [1992] 1 MLJ 185 KLSC -
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The appellant had agreed to indemnify the respondent against loss and damage occasioned by fire to the property situated at the respondent’s premises. Was subsequently renewed There was a stipulation in the policy that the respondent undertook during the currency of the policy to hold a licence as required by the municipal council and to comply with its conditions and requirements. When the policy came into effect there was no municipal by-law requiring the respondent’s business to be licensed. Later certain municipal by-laws came into force with effect from 1 January 1981 to effect of which, inter alia, was to require the respondent’s business to be licensed. The provision regarding the licence was not brought to the attention of the respondent at the time of the renewal of the policy. During the renewed term a fire occurred on the premises in consequence of which the respondent submitted a claim to the appellant. The claim was rejected. The respondent filed a suit for the money claimed 17 months after the fire and after the expiry of the stipulated 12 month period of the policy. At the trial, among the defences raised were: (1) that the claim was barred by reasons of the commencement of the action after the expiry of the 12 month period stipulated in the policy; and (2) that, in not obtaining the licence, the respondent had acted in breach of the condition regarding the licence. The trial judge gave judgment in favour of the respondent for the agreed sum with costs. The condition that the action be commenced within a 12-month period from the date of the occurrence of the loss or damage was void by virtue of the imperative words of s 29 of the Contracts Act 1950 as it clearly limited the time within which the respondent could enforce his right under s 6(1)(a) of the Limitation Act 1953. It was obvious on the facts that the procurement of a licence was never within the contemplation of the parties as it was incapable of implementation because no such requirement existed. The respondent therefore could not be said to be bound by the licensing stipulation of which he was not aware and which in any event at the material time was impossible of performance. But NOTE this is what insurer required. If insured required is it different?
Reform Law Commission, Insurance Law, Non Disclosure and Breach of Warranty (HMSO, London), Report 104, 1980, Cmnd 8064, Part VII -
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4 major defects lack of need for materiality -harsh and unfair no connection with loss – unjust often no retention of PF for insured - so can’t remember problem compounded by awful basis clause Suggestion: restrict basis clause to creation of future warranties Should only be warranty if material to risk Some sort of connection between breach and loss – indeed the case in most other jurisdictions
See also ppt for something on consumer insurance J Birds, "Reform of Insurance law" [1982] JBL 449
Other jurisdictions Canada: -
Warranty applies “ to situations where the warranty is material to the risk and the breach has a bearing on the loss”.
US: Matter of state law -
Texas: requires causal connection before rejection of payment of claim New York Code: Art 31, s3106 (b) Warranty will avoid the contract provided it “ materially increases the risk of loss , damage or injury within the coverage of the contract”.
Australia and NZ -
some causal connection For Australian Reform views, see Law Reform Commission, Insurance Contracts, Report 20, Chapter 8; see also ss 23 -27 and s 54 of Insurance Contracts Act 1984 (Cth).
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See also ALRC Review of Marine Insurance Act, Report 91, 2001, Chapter 9, Warranties
Malaysia -
s147(4) Malaysian Insurance Act A licensed life insurer shall not dispute the validity of a life policy after the expiry of two years from the date on which it was effected on the ground that a statement made or omitted to be made in the proposal for insurance or in a report of a doctor, referee, or any other person, or in a document leading to the issue of the life policy, was inaccurate or false or misleading
unless the licensed life insurer shows that the statement was on a material matter or suppressed a material fact and that it was fraudulently made or omitted to be made by the policy owner Civil Law countries: -
some degree of culpability and causation.
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